There are currently two vacancies on the Federal Reserve Board of Governors, and three years into his presidency, Donald Trump has struggled mightily to fill them. Expectedly, most of his problems have been of his own making. The president has been loudly critical of the Fed in the capable hands of chairman Jerome Powell, whom he put in that post himself in 2018, for allegedly failing to keep the policy rate low enough for his liking. (The Fed is responsible for setting U.S. overnight lending rates and closely guards its political independence as key to its ability to act in the best interest of the domestic macroeconomy.) While most presidents rightly refrain from commenting on U.S. monetary policy in order to preserve the Fed’s independence, Trump has broken precedent. Over many months, he has launched a salvo of Twitter attacks against Powell and the Fed, calling the central bank “derelict in its duties” and claiming that “they don’t have a clue, but I do.”
Given this context, Trump’s attempts to pack the Fed with questionably qualified political loyalists are hardly surprising. Last spring, I wrote in a column that the president’s then-nominations, Stephen Moore and Herman Cain, were zero-credibility partisan hacks who did not belong within a country mile of the Eccles Building. I was relieved when both Moore and Cain withdrew from the nomination process.
However, that didn’t mean that Trump was finished attempting to remake the Board of Governors, whose members sit on the Federal Open Market Committee (the Fed’s policymaking arm), in his own unholy image — in other words, choosing manifestly unqualified lap dogs with fringe-of-the-fringe ideas. Enter Judy Shelton, who was previously nominated by the Trump administration to serve as the U.S. director for the European Bank for Reconstruction and Development. Last week, the White House announced that her nomination, along with that of economist Christopher Waller, would be sent to the U.S. Senate for consideration for the remaining vacancies on the Board of Governors.
On one hand, Waller seems to be a fine choice for the Board of Governors. He is known to be a “dove” on interest rates, which is undoubtedly one reason why Trump selected him, but he is a nonpolitical expert who wrote in 2011 that central bank independence “is the key tool to ensure a government will not misuse monetary policy for short-term political reasons.” He has also served as research director at the Federal Reserve Bank of St. Louis for the past ten years. He’s spent his career in academia and in the Fed system; although his monetary policy views might appeal to Trump, he is a serious researcher and reasonable candidate.
Shelton, on the other hand, is a disastrous choice. Let’s say you are deciding between two dreadful Federal Reserve candidates. One has no fixed principles but a finger in the air to test where the political winds are blowing; the other has a blind commitment to a dangerously wrong set of beliefs. To borrow from my favorite musical, Hamilton: We know it’s lose-lose, but if you had to choose?
Where Shelton is concerned, we don’t have to choose — we get both. Her career path has been eminently political, including stints on Bob Dole’s campaign for president in 1996 and that of Ben Carson in 2016 before signing up with Trump’s Treasury transition team. Back during the Obama years, while the country was still struggling to recover from the worst effects of the Great Recession, she heaped rhetorical abuse on the Federal Reserve, arguing that easy money and expansionary fiscal policy threatened to provoke “ruinous” inflation and “debase” the dollar. Now, despite the fact that the macroeconomy is in the midst of the largest expansion in U.S. history, she believes that interest rates should be cut to zero and that the Fed should support the president’s agenda and prop up financial markets. It’s convenient that her about-face came just when a Republican was elected president. Ridiculously, she called for a “new Bretton Woods conference” to be held at Mar-a-Lago. It’s absurd to suggest that she would be anything but a liability to the Fed’s crucial independence.
Not only would Shelton be dangerously susceptible to pressure from the president, she simply advocates for bad policy. The hill she has chosen to die on throughout her career has been a dubious one: the gold standard, which opponents rightly see as an unnecessary limitation on liquidity that almost strangled the world economy to death during the Great Depression. Never mind that support for the gold standard fundamentally contradicts her espoused support for easier money: the rising price of gold would suggest that the Fed tighten. Thus, although she appears to have deftly convinced the president that she supports his bad ideas, she actually supports different, worse, hopelessly incongruous and confused ideas.
Right now, the Federal Reserve is a place where coldly apolitical technocrats manage the U.S. money supply with integrity, common sense and the best data analysis available. It is a credit to the country that Fed policymakers are able to follow objective evidence where it leads and to put aside ideological beliefs and a priori suppositions. I hope that the U.S. Senate recognizes that Shelton can’t be trusted with this thankless, yet desperately important task. The scariest part is that if the White House’s maladroit economic policies precipitate the next recession, we might not have a Ben Bernanke or a Janet Yellen in control at the Fed. If Trump ousts Powell, it could be Shelton.